IS/IT Roles in Organization and Their Relationship to Business Strategy

1
IS/IT Roles in Organization and Their
Relationship to Business Strategy
2
Session Objectives

• Understand the strategic context of IS/IT in
  organization
• Understand the business strategy formulation
• Understand the impact of business strategy to
  IS/IT strategy development.
• Widening horizon on how IS/IT plays its role in
  an organization.

3
Agenda

• Strategic Context of IS/IT in Organization
• Evolution of IS in Organization
• Success Factors of Strategic Information Systems
• The Relationship of IS/IT Strategy and Business
  Strategy
• IS/IT Strategy
• Evolution of Business Planning
• Framework of Business Planning
• Competitive Forces in Industry
• Competitive Strategy and Its Implication to IS/IT
  Strategy
• SPIS in Indonesia Local point of view

4
Strategic Context of IS in Organization

• More products available in digital form Hence
  e-delivery through an IS (give some examples
  e-products?)
• More commerce takes place electronically
  (e-commerce-create new opportunities, online
  transaction)
• More activities getting more complex, need
  various of data and information (data mining,
  enterprise information systems - ERP)
• Interrelatedness of Business activities within
  and between companies (improve efficiency and
  productivity)
• Technology advancement that can processes data in
  a large volume in a relatively short time (SPMB
  data).

5
The Evolution of Information Systems

• Year 1960 Data processing (DP) era
• Year 1970 Management IS (MIS) era
• Year 1980 Strategic IS (SIS-EIS) era
• Year 1990 E-business e-commerce era
• Year 2000 Enterprise Resource Planning era
• Each era has different characteristics of IS.

6
Characteristic of DP Era

• Centralized processing
• Using multi-purpose Mainframe computer
• Batch processing
• Data storage magnetic disk, tape
• Programming language Cobol, Basic, etc.
• Automating information-based processes

Characterize the nature of business at DP era?
7
Characteristics of MIS Era

• Introducing minicomputer
• Using variety business applications
• Still centralized
• Used a hierarchical application portfolio model
  based on a stratification of management activity
• Strategic planning
• Management control
• Operational control
• Increase management effectiveness by satisfying
  their information requirements for decision
  making to help manager
  
  

Characterize the nature of business at MIS era?
8
Characteristics of SIS Era

• Introducing Personal Computer (PC)
• Introducing office automation
• Introducing new capabilities flexible access and
  decision support
• Improving competitiveness by changing the nature
  or conduct of business (i.e. IS/IT investments
  can be a source of competitive advantage)

Characterize the nature of business at SIS era?
9
SIS MIS DP
Sales forecasting operating plans
capacity planning, profit/earnings
forecasts, business mix analysis,
manpower planning, financial modeling
Planning systems examples
Sales analysis budgetary control,
management accounting, inventory management,
quality analysis, expense reporting, market
research/statistics, WIP control, requirements
planning, supplier analysis, etc.
Control systems example
Order entry, processing, tracking shipping
documents, vehicle scheduling/loading, invoicing,
sales and purchase ledgers, cost accounting,
stock control, shop-floor scheduling, bill of
materials, purchase orders, receiving, employee
records, payroll, word processing
Operational systems examples
Early Views and Models of IS/IT in Organizations
(Anthony, 65)
10
Types of SIS

• Those that link the organization to its customers
  or suppliers to share information
• Those that effectively integrate the use of
  information in the organization value chain
• Those that enable the organization to develop new
  or enhanced products or services based on
  information
• Those that provide managers with better
  information for strategy development
• Example Tradenet, SABRE (American Airlines),
  Valuelink (Baxter Healthcare).

11
Success Factors of SIS

• External in nature instead of internal focus i.e
  image building
• Adding value instead of cost reduction i.e
  e-ticket
• Sharing the benefits internally and externally
  i.e ATM
• Understanding customers and their needs i.e
  customized product
• Business instead of technology driven innovation
  i.e covering a wider customers
• Incremental instead of total development i.e
  web-based application
• Using information gained to develop business i.e
  learning organization

Exercise your critical thinking by giving more
examples to those success factors !!
12
Trends in the evolution of business IS/IT
(source adapted from R.D. Galliers and E.
Somogyi)
13
Different views of strategic information systems
14
The Relationship Between the Business, SIS, MIS,
and DP
Business Strategic Management
Executive Management
IS/IT Strategic Management
Impact Analysis
User Management
IS Management
User Operations
Information Analysis
Project and Computer Management
Systems Design
15
The relationship between business, IS and IT
strategies
16
An Applications Portfolio for the Combined Era
McFarlan 84
17
So Whats an IS/IT Strategy?

• IS/IT strategy is composed of two parts
• IS component
• IT component
• IS strategy defines the organizations
  requirement for information systems to support
  the overall strategy of the business
• The IT strategy is outlining the vision of how
  the organizations demand for information and
  systems will be supported by IT
• It addresses the provision of ICT capabilities
  and resources and services such as IT operations,
  systems development and user support

Start thinking about the example of IS/IT
Strategy!!
18
(No Transcript)
19
(No Transcript)
20
(No Transcript)
21
(No Transcript)
22
The Context of IS/IT Strategy (Sullivan, 1985)
Internal organization pressures demanding
further distribution of IS/IT control
High
Diffusion degree of decentrali- zation of IS/IT
control in the organization
Opportunistic
Complex
External competitive pressures increasing the
criticality of IS/IT to the business
Backbone
Traditional
Low
Low
High
Infusion-degree of dependence of IS/IT of the
business
23
Evolution of Business Planning (Welleck,
dkk.,1980)
Effectiveness of strategic decision making
Well defined strategic framework Strategically
focused organization Widespread
strategic thinking capability Reinforcing
management processes Supportive value system and
climate
Multi-year budgets Gap analysis Static allocation
of resources
Situation analysis and competitive
assessments Evaluation of strategic options Dynami
c allocation of resources
Annual budgets Functional focus
Stage 1 Stage 2 Stage 3 Stage
4 Financial Forecast-based Externally
Strategic planning planning oriented manageme
nt (meet budget) (predict the (think (create
the future) strategically) future)
24
Framework for Business Planning
External Environments
Economic Political Ecological Technological Socia
l Legal
Pressure Groups
Values Objectives Identify current
Identify future Threats and strategies
strategies opportunities Evalu
ate Analyze Evaluate feedback
internal strategies
resources Monitor Implement
Select Strategies Strategies
Strategies
Customers Suppliers Shareholders Employees Unions
Government Public
Competitors Customers Suppliers Shareholders Emplo
yees Unions Public Media Financial Ins.
Stake Holder
25
Input to Business Planning

• External environments - sources of important
  signals to organizations
• Pressure groups - demand recognition and rapid
  management response
• Stakeholders - demand fair share of created
  wealth
• Business planning is usually carried out for each
  strategic business unit
• A unit that sells a distinct set of products or
  services, serve a specific set of customers, and
  competes with a well-defined set of competitors

26
Definition of Business Strategy

• Definition of business strategy
• An integrated set of actions aimed at increasing
  the long-term well-being and strength of the
  organization relative to its competitors

27
Process of Business Planning
Establish strategic direction
Define strategies
Achieve strategies
feedback
Strategic planning of options selected

• Define mission and objectives
• Assess situation and options
• Select options

Implement strategies
Strategic thinking and opportunistic decision
making
28
Technique to Develop Business Strategy
Competitive Forces in Industry (Porter, 1980)
Threat of new entrants
Rivalry among existing competitors
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitute product
29
Factors Affecting The Impact of Competitive Forces

• New entrants
• Capital requirements
• Patents and specialists skill required
• Distribution channels available
• Achieved/required economies of scale and
  resultant cost advantages
• Number and size of existing rivals and intensity
  of competition
• Differentiation and brand establishment/loyalty
• Access to raw materials/critical resources etc.

Business strategy how to discourage new
entrants to come into the business
30
Strategic Choices Factors Affecting The Impact
of Competitive Forces

• Substitute products/services
• Customer awareness of needs and means of
  satisfaction
• Customer sensitivity to value for money and
  ability to compare
• Existing loyalty of customerimpact of industry
  promotion
• Ability to differentiate products etc.

Business strategy how to create a loyal
customers?
31
Strategic Choices Factors Affecting The Impact
of Competitive Forces

• Competitive rivalry will be intensified by
• Market growth slow (or in decline)
• Small number of similar sized competitors
  dominate
• High fixed costs and/or high exit barriers for
  all rivals
• Overcapacity and/or capacity increments are large
  units
• Commodity-like, undifferentiated products.

Business strategy how to differentiate your
products?
32
Strategic Choices Factors Affecting The Impact
of Competitive Forces

• Buyers power will be increased by
• Concentrated/few buyers making high volume and/or
  high value of purchases
• Low switching costs across suppliers
• Price sensitive and many alternative sources of
  supply
• Weak brand identities, products not
  differentiated
• Buyers capable of backward integration due to low
  entry cost.

Business strategy how to make the buyers depend
on your business
33
Strategic Choices Factors Affecting The Impact
of Competitive Forces

• Suppliers power will be increased by
• Few suppliershigh switching costs for rivals and
  suppliers deal with many small customers
• Potential substitute supplier/resources not
  easily available
• Supplied goods make up large part of firms costs
• Suppliers capable of forward integration or
  bypass to customers

Business strategy how to make the suppliers
depend on your business
34
Generic Competitive Strategy
Low Cost
Competitive Advantage
Differen- tiation
35
Characteristics of Generic Strategies
Generic Strategies Commonly Required Skills and Resources Commonly Organizational Requirements
Overall cost leadership Sustained capital investment and access to capital Process engineering skills Intense supervision of labor Tight cost control, frequent, detailed control reports. Structured organization and responsibilities. Incentives based on meeting strict quantitative targets
Differentiation Strong marketing abilities and creative flair. Product engineering skills. Strong capability in basic research. Corporate reputation for quality or technological leadership. Strong cooperation from distribution channels. Strong coordination among functions in RD, product development, and marketing. Subjective measurement and incentives instead of quantitative measures (market based incentives). Amenities to attract highly skilled labor or creative people. Looser, more trusting organizational relationships.
Focus Combination of the above policies directed at the particular strategic target. Combination of the above policies directed at the particular strategic target.
36
Implications of Competitive Business Strategy to
IS/IT Strategy

• How can IS/IT affect the nature and value of the
  product or service and its life cycle?
• Generate a new product or a new line of business
• Enable products to be designed or delivered more
  quickly
• Be used to add additional features or services to
  increase the products value

37
Continued..

• How can IS/IT affect the demand for products and
  services, segments more effectively, extend them
  geographically, or provide new distribution
  channels to reach the market?
• Enable to reach more appropriate customers
• Enable to match our different products/services
  to customer appropriately
• Enable the product/service to be distributed in
  new ways to the customers
• Enable to get closer to the market-place rather
  than deal through intermediaries

38
Continued..

• How can IS/IT affect the cost base of the key
  processes in the industry or change the balance
  in the trade-off between flexibility and
  standardization?
• Enable the product/service to be produced more
  economically
• Enable production and associated logistics to be
  integrated to produce greater flexibility of
  resource use
• Enable a higher quality of product or service to
  be offered at a much lower cost than traditionally

39
Examples of How IS/IT has affected the
competitive forces in the airline industry
How can IS/IT build barriers to new entry? By increasing IT entry cost for reservation systems. By tying in distribution channels (travel agencies).
How can IS/IT build in switching costs for customer? By linking purchasing and remittance systems to reduce overheads of customer. Discount/volume packages to discourage piecemeal purchase.
How can IS/IT change the basis of competition? Lower costs optimize yield per aircraft. Differentiate servicereconfiguring aircraft due to demand. Niche/focus service into high yield sectors (business travel)
How can IS/IT change the balance of power in supplier/customer relationship? Agent is constantly aware of seat availability of competing airlines. Airline can readily promote unsold capacity via chosen agents.
How can IS/IT generate new products/services? Integrated travel package to high mileage business customersby passing agencies. New routes/schedule to cater for demand.
40
Impact of Competitive Forces and Potential IS/IT
Opportunities
Key force impacting the industry Business implications Potential IS/IT effects
Threat of new entrants Additional capacity Reduced prices New basis for competition Provide entry barriers or reduce access by exploiting existing economies of scale, differentiate products or services, control distribution channels, segment markets
Buyer power high Forces prices down Demand higher quality Require service flexibility Encourage competition Differentiate products or services and improve price or performance Increase switching costs of buyer Facilitate buyer product selection
Supplier power high Raises prices or costs Reduced quality of supply Reduced availability Supplier sourcing systems Extended quality control into suppliers Forward planning with supplier
Substitute products threatened Limits potential market and profit Price ceilings Improve price or performance Redefine products and services to increase value Redefine market segments
Intense competition from rivals Price competition Product development Distribution and service critical Customer loyalty required Improve price or performance Differentiate products and services in distribution channel and to consumer Get closer to the end consumerunderstand the requirements
41
Why is IS/T Planning Important?

• IT Strategy is the process of defining the
  strategic use of technology in an organization.
• The IS/T Planning process ensures efficient and
  effective investment of IT to support the
  business
• IT is More Critical to Corporate Success
• The use of IT is increasingly pervasive
• Enterprises are discovering that IT can influence
  the relative performance of most departments

42
Indonesia and IS Planning

• There is a tendency not to pay attention for
  planning
• The attitude extends to IS/T planning
• Part of the problem is that there is no
  tangible or less realizable outcome resulting
  from IS/T planning
• We see more Indonesian organizations conduct IT
  projects not preceded by formal IS/T Planning

43
Results of Lack of IS/T Planning

• Failed of IS/T projects
• We see IT projects which lacks direction, weak in
  scope, have little of no identification of
  Critical Success Factors.
• Inefficient use of investment in IT
• Bad name for IT professionals and due to failed
  IT implementations

44
IS/IT Planning for the Indonesian

• Need processes which are more facilitator-driven,
  higher involvement of consultants who has
  psychological and cultural sensitivity
• Need processes which are a combination between
  verbal (direct) and in-direct interactions to
  ensure that ideas and opinions are fully
  expressed

45
IS/T Planning in Indonesian Organizations
Realities

• Justification for auditing purposes
• Idea often comes bottom up hence the challenges
• Do not believe in documentation hence the
  approach is often less formal
• Difficult to get buy-in from management who would
  rather see IT implementation projects
• Whos project is this an IT department project?

46
Trends in IS/T Planning

• We will see more formal IS/T Planning
  activities with increase of IS/T dominance as an
  integral part of business
• IS/T Planning will need to be done faster, with
  the faster trend of technology development
• Clear definition between business plan, IS/T
  planning and IT implementation will become more
  and more blurred as technology will continue to
  drive businesses stronger

47
Exercise Your Thought

• Explain the evolution roles of IT/IS in an
  organization?
• What are Business and IS/IT strategies?
• Explain the relationship of Business, IS/IT
  strategies?
• How external forces influence business strategy
  and IS/IT strategies
• What are the challenges of IS/IT Plan in
  Indonesia?